Posts Tagged Sandy Hutchens
Sandy Hutchens is happy to see the economy is leveling out
Posted by admin in Uncategorized on August 13th, 2009
The Federal Reserve said on Wednesday the U.S. economy was showing signs of leveling out two years after the onset of the deepest financial crisis in decades and it moved to phase out one emergency measure.
The U.S. central bank also kept its benchmark short-term interest rate steady near zero and said it would likely stay there for an extended period to guide the way to recovery.
The Fed made its clearest statement to date that it sees the recession nearing an end and that shattered financial markets are healing.
“Information since the Federal Open Market Committee met in June suggests economic activity is leveling out,” the Fed said, referring to its policy-setting panel. “Conditions in financial markets have improved in recent weeks.”
It is the first time since August 2008 that the committee’s statement has not characterized the economy as contracting, weakening, or slowing.
Many peg the onset of the crisis to French bank BNP Paribas’ move in August 2007 to freeze funds because of problems with U.S. subprime mortgages. In the months that followed, the U.S. economy toppled into the most damaging financial crisis and painful recession in decades, and the economic malaise spread around the world.
“They see the worst with the economy is behind us but they don’t want to jump the gun and pull back quickly,” said Craig Thomas, a senior economist at PNC Financial Services in Pittsburgh.
The Fed cautioned that the economy remains fragile as employers continue to cut jobs and businesses trim investment.
U.S. Treasury prices fell after the Fed statement in apparent disappointment that the Fed did not increase the amount of debt that it plans to buy but subsequently regained some ground.
However, major U.S. stock indexes flirted with 10-month highs and the U.S. dollar rose against the yen.
The Fed cut interest rates to a range of between zero and 0.25 percent in December and pumped hundreds of billions of dollars into financial markets to stimulate economic activity in aggressive efforts to thwart the recession.
President Barack Obama’s ability to implement his health care and environmental reforms partly depend on his administration’s ability to turn the economy around with a controversial $787-billion economic stimulus package.
The recession has seen tax revenues fall and spending rise, leading to a record federal budget deficit expected to top $1.84 trillion in the current fiscal year.
Fed Chairman Ben Bernanke’s own renomination hopes for a second term have a lot riding on his ability to restore growth and jobs after the Fed’s role in controversial financial rescues and after questions about why the Fed did not spot the gathering storm earlier and take steps to prevent it.
Recent reports imply that the economy may be coming out of its swoon and that job losses, which have topped 6 million since the recession began in December 2007, may be moderating.
Still, the Fed renewed its warning that economic activity is likely to stay soft for “a time.” Household spending, while stabilizing, is still weak as a result of the grim labor market and tight credit, the Fed said.
To quell worries the Fed’s bloated balance sheet may sow the seeds of dangerous inflation once the recovery gains traction, Bernanke has taken pains to explain the Fed has tools to pull money out of the financial system to prevent price pressures from building.
Some analysts also worry the Fed’s easy money policies are setting the stage for another asset bubble, just as an extended period of low rates in the early part of the decade encouraged the housing boom that triggered the crisis.
The central bank cautiously moved to pull back some of that help for the economy on Wednesday, signaling it would slowly phase out a program to buy $300 billion in longer-term Treasuries by the end of October.
“To promote a smooth transition in markets as these purchases of Treasury securities are completed, the committee has decided to gradually slow the pace of these transactions
and anticipates that the full amount will be purchased by the end of October,” the Fed said.
The Fed launched the debt-buying program in March when it had already chopped interest rates to zero but wanted to open the money taps even wider to support the struggling economy. Treasury purchases were scheduled to expire in September.
The Fed’s decision to refrain from expanding its bond buying while standing pat on rates contrasts with approaches taken by other central banks around the world faced different stages of economic and financial stabilization.
The Bank of England stunned markets last week by expanding its program of bond purchases by a much larger amount than expected, saying the recession deeper than it had forecast.
Why economists don’t fix their mortgages
Posted by admin in Uncategorized on August 13th, 2009
BORROWERS have never been more uncertain about the outlook for interest rates — and whether they should fix their mortgage or stay on a tracker.
Warnings from the experts that inflation will increase rapidly, forcing interest rates to rise and in turn pushing up the cost of borrowing, have become a familiar refrain.
However, homeowners on low variable-rate deals may be comforted to know that even some of Britain’s top economists do not see the value in switching to a fix.
With the Bank of England widely expected to leave official interest rates on hold at 0.5% for the fifth month in a row on Thursday, The Sunday Times asked leading economists what they do with their mortgages.
Martin Ellis, chief economist at Halifax, Britain’s biggest mortgage lender, and Simon Rubinsohn of the Royal Institution of Chartered Surveyors were among those on variable deals, which rise and fall in line with Bank rate — yet neither had any intention of fixing.
Not everyone was happy to tell us about their own finances — economists at Nationwide, Standard Life Investments, Deutsche Bank and Collins Stewart, for example, were unable to take part.
Our survey found that those wanting to buy now had slightly different views from homeowners on super-low trackers.
Those looking to remortgage may have missed the cheapest deals, for now, though those who are buying still prefer to fix, according to Mark Harris of Savills Private Finance, the independent mortgage broker.
Bank of England data last week showed that the average five-year fixed-rate mortgage for borrowers with a 25% deposit rose 0.61 percentage points in June to 5.54%, adding £1,220 to the cost of a new £200,000 loan. Mortgage rates for two-year and three-year fixes also rose significantly. Here, we look at what the experts are doing with their mortgages.
Stuart Thomson, Ignis Asset Management Thomson, an economist at Ignis — the Glasgow-based fund management firm formerly known as Resolution Asset Management — argues strongly that deflation is a bigger threat than inflation. Interest-rate rises are therefore “very far in the distant future”, he said, adding that he will be paying his lenders’ standard variable rate (SVR) for the foreseeable future on his three mortgages.
For his main home in Glasgow, he took out one of Halifax’s two-year fixes in 2006, but is now paying its SVR of 3.5%. While this is not the lowest rate available — HSBC offers a two-year tracker at 2.49% — he said that HSBC’s £799 arrangement fee would wipe out much of the savings from switching.
He is doing even better on his two buy-to-lets, with Mortgage Express, the broker-only arm of Bradford & Bingley, which has been government-owned since September.
He is paying an SVR of only 1.75% over Bank rate, or 2.25%, so the rental income on the properties, in the prime London areas of Fulham and Clapham, comfortably covers his entire mortgage repayments.
He said: “Fixed-rate loans have already priced in substantial interest-rate rises over the next two years — you are paying an awful lot for that insurance unless you believe interest rates are going to rise even more rapidly, which we don’t.”
Simon Rubinsohn, Rics Rubinsohn, Rics’ chief economist, believes rates will rise, but not by very much. He took out a current account mortgage — similar to an offset — with Royal Bank of Scotland when he bought his house in north London in spring 2005. The arrangement allows him to put the interest earned on his savings toward reducing the interest on his loan. He said: “I think rates may go up a bit, but the outlook is pretty benign. We don’t expect rates to rise until 2010 and then by only half a percentage point.”
Peter Spencer, Ernst & Young Item Club Spencer is the chief economic adviser to the respected independent economic forecasting group. Spencer was fortunate enough to take out a Bank rate tracker with a margin close to 0.5% above Bank rate. He hopes to pay off his mortgage soon.
The Item Club believes that Bank rate will stay at 0.5% until the end of 2010.
Spencer said: “Inflation will be pinned to the floor by the weight of the profit margins banks are charging on the cost of loans. The spreads banks are charging for fixed-rate loans are scandalous.”
James Butterfill, HSBC Private Bank Butterfill, an economist, sold his home in London last summer and had been renting while he waited for property prices to hit bottom — which he believes they now have. Last week, he bought a house in Clapham.
HSBC’s, rather than the Bank of England’s, view is that house prices will be “stagnant” for the next year-and-a-half, but Butterfill decided to buy now to take advantage of cheap mortgage rates. He secured a three-year fix from the Royal Bank of Scotland at 3.95%.
For buyers, there is not much between three-year fixes and trackers — indeed, the best long-term tracker is only slightly cheaper than Butterfill’s fix, at 2.99% from HSBC.
Butterfill concedes that a three-year term is a bit of a “gamble” as the view is that this is precisely when inflation will rise. He said: “Inflation expectations depend on good central bank policy. I am gambling on the fact that the Bank of England does not make policy errors. Then, hopefully, I can cherry-pick from some more attractive mortgages in three years’ time.”
Martin Ellis, Halifax Ellis took out a tracker four years ago and while he anticipates Bank rate will rise to 1% in 2010, runaway inflation is “a long way off” — if it occurs at all. “I think it’s going to be some time before rates rise much beyond that,” he said. “We’ve seen some pretty bad economic figures recently and we are expecting sluggish growth for some time.
Sandy Hutchens is watching the markets and is not pleased to see such uncertainty from the borrowers.
Sandy Hutchens Watching the Market
Posted by admin in Paralegal Articles, Uncategorized on August 13th, 2009
Reacting to news that over half of borrowers have failed to keep up with their mortgage payments even after the terms of their loans have been modified, Office of Thrift Supervision director John Reich on Monday said that focusing on job creation might be a better use of federal dollars.
“I do have a concern about money for loan modifications, particularly with such a high range of re-default,” Reich told participants at a conference in Washington organized by the Office of Thrift Supervision. “Focusing on job creation is a better way to focus federal dollars than on a loan modification process may be only partially effective.”
Reich’s statement clashed with Federal Deposit Insurance Corporation chairwoman Sheila Bair over the best way to use government funds to end the financial crisis.
Reich’s comments were focused, in part, on Bair’s controversial proposal that would use $24.4 billion of a $700 billion government bank bailout program to modify loans. Bair argues that her proposal, which isn’t supported by outgoing Treasury Secretary Henry Paulson, could avert 1.5 million foreclosures. Reich also referred to a job creation stimulus proposal put forward by President-elect Barack Obama.
Reich told MarketWatch that use of government capital to buy large minority stakes in U.S. savings and loan banks is working, but that it is too early to get a sense of how much lending participating institutions are doing.
To back his argument, Reich pointed to statistics released Monday by the Office of Comptroller of the Currency director John Dugan showing a high re-default rate on mortgages that have been modified in the first two quarters of 2008.
“The results were surprising, and not in a good way,” Dugan told a gathering in Washington at the Office of Thrift Supervision’s annual conference.
According to the OCC statistics, which looked at loans modified in the first quarter and second quarter of 2008, 36% of borrowers had re-defaulted by being more than 30 days past due and after six months, the rate was roughly 56%. After eight months, 58% of borrowers had re-defaulted.
The OCC tracked the number of borrowers that re-defaulted on their mortgages after the modification was completed. Dugan acknowledged that not all re-defaulted mortgages go to foreclosure, but he argued that the number was very high. Dugan said he was not sure why there was such a high level of re-default, pointing out that it may be because the modifications were not low enough to be affordable.
Bair contended that the statistics provided by Dugan did not provide enough details about the circumstances surrounding mortgage re-defaults such as whether a borrower’s income has been verified or not. She argued that even with the statistics, a large number of modified mortgages have not led to foreclosure.
“Without more data about whether it was a meaningful reduction in the rate, it’s not clear how successful the modification is,” Bair said. “We do need more detailed reports and more granulated reporting.”
Other bank regulators argued that the government should employ an all encompassing approach that includes a jobs stimulus package, a capital purchase plan for financial institutions and mortgage modification. “I suspect there isn’t any one approach that is clearly superior to any other approach,” said Federal Reserve vice chairman Donald Kohn. “These problems are pervasive enough that we need to focus on a number of different fronts.”
President-elect Barack Obama said on Saturday that he wants to create millions of jobs by investing in a huge new national program to rebuild the nation’s infrastructure.
Dugan agreed that across the board approach should be used. He added that Bair and others should use the statistics the OCC produces to develop a successful loan modification program for 2009.
House Financial Services Committee Chairman Barney Frank reiterated Monday that he wants part of the $360 billion left in the $700 billion Troubled Asset Relief Program to be used to help modify loans.
“The singular latest failure of public policy is to do significant foreclosure relief,” said Frank. “Principle reduction has got to be one of the things we do. There still is money left in the TARP.”